Empirical evidence shows that a large number of companies allocate ownership rights to stakeholders different from shareholders, despite the fact that the law attributes these rights to the equity holders. This paper contributes to an understanding of this evidence by developing a contingency theory for the allocation of ownership rights. The theory sheds light on why companies, despite pressures from the law, vary in their allocation of ownership rights. The theory is based on the assumption that corporations increase their chance to survive and prosper if the stakeholders supplying “critical contributions” receive the ownership rights. According to the theory, “critical” contributions involve: (1) contractual problems due to specific investments, long term relationships and low measurability; (2) the assumption of (at least a part of) the uncertainty resting on the company; (3) the supply of scarce and valuable resources. The theory is dynamic because it also provides a basis for understanding why the allocation of ownership rights changes with time. Finally, the paper presents the strategies companies can use in order to realize efficient distribution of ownership rights among their stakeholders.
Who should control a corporation? towards a contingency stakeholder theory for allocating ownership rights
ZATTONI, ALESSANDRO
2006
Abstract
Empirical evidence shows that a large number of companies allocate ownership rights to stakeholders different from shareholders, despite the fact that the law attributes these rights to the equity holders. This paper contributes to an understanding of this evidence by developing a contingency theory for the allocation of ownership rights. The theory sheds light on why companies, despite pressures from the law, vary in their allocation of ownership rights. The theory is based on the assumption that corporations increase their chance to survive and prosper if the stakeholders supplying “critical contributions” receive the ownership rights. According to the theory, “critical” contributions involve: (1) contractual problems due to specific investments, long term relationships and low measurability; (2) the assumption of (at least a part of) the uncertainty resting on the company; (3) the supply of scarce and valuable resources. The theory is dynamic because it also provides a basis for understanding why the allocation of ownership rights changes with time. Finally, the paper presents the strategies companies can use in order to realize efficient distribution of ownership rights among their stakeholders.
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